Good news for DVD industry

Disc gains compensate for VHS plummet

The homevideo market regained some of its luster last year, edging back up slightly after slipping for the first time in 2005.

According to research by DailyVariety sister publication Video Business, consumer spending on DVD and VHS sales and rentals crept up 0.5% to $23.6 billion in 2006, thanks to DVD gains that compensated for the dramatic declines by the moribund VHS format.

The research, based on data supplied by Rentrak and studio homevid divisions, shows overall sales up 1.4% to $15.91 billion, with rentals sagging slightly.

Despite hand-wringing about the category’s future in the age of digital downloads, consumer spending on new releases was up for the year. Disney’s poised to claim the top three sellers for the year, with “Pirates of the Caribbean: Dead Man’s Chest,” “Cars” and “The Chronicles of Narnia: The Lion, the Witch and the Wardrobe” sitting pretty as the final sales tallies trickle in from retailers.

“Flightplan,” “Wedding Crashers” and “Walk the Line” lead the rental charts.

While movie downloads and high-def disc sales were media darlings for much of the year, revenues from both represented less than 1% of the coin generated by DVD last year. The format topped $23 billion in 2006 on gains in nearly every segment. Disc sales rose 4.6% to $15.65 billion, with $14.9 billion of that coin generated at brick-and-mortar stores, according to Rentrak’s Retail Essentials point-of-sale tracking service. Research org’s Home Video Essentials division pegged DVD rentals up 10.3% to $7.39 billion.

“There’s always new technology that’s sexy and gets all the buzz, but when the rubber hits the road, consumers are still in love with their DVDs,” said 20th Century Fox Home Entertainment exec VP-general manager Simon Swart. “The message of the year is to take care of the business at hand.”

The slight gain was a relief to homevid divisions battered by the first decline ever the previous year. In 2005, spending dipped 1.1% on a particularly soft second half.

“Studios came to the floor with ideas on how to continue to increase growth in the business,” said Lionsgate president Steve Beeks. “It’s still an incredibly healthy business. … There was never anything wrong with the market; we just had to adjust to a market that was slowing its growth.”

Last summer’s rebound at the box office boosted the new release segment, whose perf was wobbly the previous year. Consumer spending on new releases was up in 2006, driven by big disc debuts of “Pirates,” “Cars” and “Harry Potter and the Goblet of Fire.” What’s more, consumers continued to spend more money on pics on disc than at the B.O., said Paramount worldwide prexy of home entertainment Kelley Avery. At Paramount, consumers spent 17% more on DVD releases than they did in theaters.

“It’s proof that consumers really remain enamored with the home entertainment options that are available today in the marketplace,” Avery said.

Disney’s video mavens were especially pleased to notch the top three sales spots. “That’s something that has never happened,” said Lori MacPherson, general manager of North America for Buena Vista Worldwide Home Entertainment.

Overall rentals dipped slightly for the year, down 1.5% to $7.67 billion on a 74% drop in VHS rental coin. Videocassettes generated $281 million in rental coin and even less in sales. Faced with evaporating demand — by consumers and retailers — major studios stopped releasing their pics on VHS before the fourth-quarter selling season heated up (Daily Variety, Nov. 15).

New Line had originally planned to release“Wedding Crashers” in late 2005 but switched the date, then ended with the No. 2 renter for the year and No. 7 seller. “Ultimately, we made that change because we thought it was best for the title,” said New Line Home Entertainment prexy-chief operating officer Stephen Einhorn. “It’s always nice when it turns out to be true.”

Warner Home Video president Ron Sanders expects high-def growth to replace VHS drag in 2007. “Then we could show some really strong growth in the business,” he said.

In the meantime, library titles have proven particularly vibrant. Catalog revenues also grew even as pricing remained competitive as retailers and studios competed for market share. And it wasn’t just low-priced catalog that sold — higher-priced multifilm collections such as a John Wayne set from Warner showed strong sales.

Sony Pictures Home Entertainment, which lost distribution of the MGM library in the second half of the year when the studio switched to Fox, nonetheless saw 27% growth in its catalog biz. Aggressive promotions around Thanksgiving drove library unit sales up 140% for Sony.

“I think primarily it was really working with retailers further in advance than we had before and crafting programs specifically designed for them,” said Sony homevid worldwide president David Bishop.

TV shows were one of the strongest segments of catalog. “There’s still a lot of demand for new releases on TV, but also as new releases are played out, the catalog continues to have huge strength as well on DVD,” said Warner’s Sanders.

TV new release sales were down due to fewer debuts, for example, but unit sales on individual releases were up. Typically, the first season of a show sells more than the second and third seasons, but Disney said both “Lost Season 2″ and “Grey’s Anatomy Season 2″ outsold the first season following their fall releases.

The closing of Tower Records had an impact on niche content for smaller suppliers, who rely more on specialty retailers to stock their titles, though online growth limited the impact some.

“We’re seeing Internet retailers play an increasing role in that space than in the past, so it had less impact than it would have,” said Genius Products CEO Trevor Drinkwater.

Genius’ growth rocketed last year as it moved from a specialty supplier with $30 million in annual revenues to a distributor with more than $390 million in revenues last year after signing on to distrib DVDs for the Weinstein Co.